The truth is that there never has been any such thing as common sense regulations when it comes to Registered Investment Advisers (RIA's). Do not get me wrong. I am on the side of disclosure and regulation, because every time you turn around, there is another Ponzi scheme happening. Sadly however, the good guys are stuck complying while the bad guys are out there stealing people's money.
The Securities and Exchange Commission has instituted a new Form for RIA's called a Form CRS which stands for customer or client relationship summary. This is to be kept to two pages by RIA's like my firms.
The Form ADV 2A is also required and that is 22 pages long. The corresponding Form ADV 2B that goes with it is another 14 pages long. My firm's Investment Advisory Agreement is 12 pages.
Of course, because I am a CFP®, I am now subject to even more disclosure to clients. I felt the need to create a new CFP® disclosure document that is 5 pages.
Oh, I almost forgot, if I refer a client to Morningstar to let them manage the client account, then I have to provide their disclosures. This is another 24 pages. But wait. There is more. Morningstar requires a Request for Proposal for each client which varies, but generally you can count on another 20 plus pages.
So, if I take out my trusty HP-12C calculator and add all this up, I come to the laughingly low figure of 85 pages of disclosures.
Oops! I forgot. We have to fill out the paperwork from the qualified custodian, Charles Schwab & Co. Inc. or Fidelity Investments. That will get us up to over 100 pages easily.
Don't you think 85 pages of disclosures is a little too much? Are you going to read all of that from cover to cover, each and every word of it?
See what I mean when I say there is no such thing as common sense these days when it comes to regulations. The good guys are being penalized for the bad guys' bad behavior.
We need to get the requirements down to a simple two or four page requirement and refer the client to our web site if they want more details. That's just my lone opinion from someone out here in the wilderness.
Showing posts with label SEC. Show all posts
Showing posts with label SEC. Show all posts
Monday, November 25, 2019
Wednesday, September 18, 2019
New CFP Disclosure
Effective October 1, 2019, The CFP® Board of Standards has done a complete re-write of their Code of Ethics and Standards of Conduct for Certified Financial Planners®. The purpose as stated in the recently released "Roadmap" is as follows:
"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."
Things just got a whole lot more complicated for CFP® professionals.
Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?
Well, it might help to understand what the steps are to a Financial Plan first. Here they are:
Here are some items that a CFP® professional reviews as part of a Financial Plan:
If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!
Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.
Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?
Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.
https://firstcoastplanning.com
"CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. The Code of Ethics applies at all times, and sets forth principles that guide the behavior of CFP® professionals, ... The cornerstone of the Code of Standards is a CFP® professional's duty to act as a fiduciary and, therefore, act in the best interest of the Client at all times when providing Financial Advice."
Things just got a whole lot more complicated for CFP® professionals.
Under the "Duty to Provide Information to a Client", we will now need two disclosures, or one combined disclosure. The first one is a "Financial Advice Engagement Disclosure" and the other one is a "Financial Planning Engagement Disclosure." What's the difference? I'm glad you asked. The Financial Advice Engagement Disclosure is for clients who only want financial advice and not a financial plan. Whereas, the Financial Planning Engagement Disclosure is for clients who want a Financial Plan that may also include financial advice. Got that?
Well, it might help to understand what the steps are to a Financial Plan first. Here they are:
- Understanding the Client's Personal and Financial Circumstances
- Identifying and Selecting Goals
- Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
- Developing the Financial Planning Recommendation(s)
- Presenting the Financial Planning Recommendation(s)
- Implementing the Financial Planning Recommendation(s)
- Monitoring Progress and Updating
Here are some items that a CFP® professional reviews as part of a Financial Plan:
- Net Worth
- Balance Sheet
- Liquidity
- Budget
- Debt
- Student Loans
- Tax Returns - Most Recent and Projected
- Asset Allocation
- Taxable Accounts
- Tax-deferred and Retirement Accounts
- Sector and Style Concentration
- Retirement Income
- Retirement Income Taxation
- Retirement Income Stress Tests - Worst Case Scenarios
- Social Security Optimization
- Medicare
- Cash Flows - Current and Future
- Life Insurance
- Disability Insurance
- Long Term Care
- Property and Casualty
- Education Planning
- Account Titling and Re-Titling
- Wills and Pour-over Wills
- Revocable Trusts - Beneficiaries and Successor Trustees
- Health Care Proxies and Living Wills
- Real Estate Titling
If you are a consumer of Financial Advice or Financial Planning, then be prepared to receive more communication from your CFP® professional in the form of written disclosures. Right now, I have a combined document of four (4) pages. Add that to my Investment Advisory Agreement which is ten (10) pages. Of course, my Form ADV 2A is twenty-five (25) pages. Don't forget my Form ADV 2B which is fourteen (14) pages. Further still, there is the new Form CRS that is another two (2) pages. Just to be safe, I think that I will need to add another three (3) pages to describe my services and a fee comparison, so potential clients can see what they are getting for their money. All totaled, we are looking at a total of fifty-eight (58) pages of disclosures. FIFTY-EIGHT PAGES!
Of course, if you are a consumer of Financial Advice or Financial Planning, then I fully expect you to read all 58 pages and sign off on the fact that you did.
Forgive me for being a little bit sarcastic, but does the United States Securities and Exchange Commission, better known as the SEC, truly believe in their heart of hearts that people are going to read fifty-eight (58) pages of disclosures? How about the CFP® Board? Do they believe it?
Written disclosures are not for the benefit of clients. It is for the benefit of regulators and attorneys who draft the documents. It is job security for both.
https://firstcoastplanning.com
Wednesday, September 4, 2019
California Alcohol Licensee "Investments"
This one takes the cake as far as Ponzi schemes go.
"I have a great investment for you. We loan money to California Alcohol Licensees who need funds to apply for a California Liquor License. When they get the license, then they will pay you back at a rate of 12% interest once they open their liquor store."
Well, I do not know for sure what the sales pitch was, but I do know that $300,000,000 was stolen from investors who fell for this. Think of it. Investors actually put $300,000,000 into this so called "investment." THREE HUNDRED MILLION DOLLARS OF STUPIDITY!
Are we this dumb and stupid America? Or, is this just the result of pure unadulterated greed?
Readers of my book, Meet Wally Street. The Reason You're Stupid, 2nd edition (aptly named in this case) know full well that Ponzi schemers sell investments that are unregulated and do not exist. If these "investors" had read my book, then they would have never invested in this "investment." The problem is that I'm just a little peon in the grand scheme of things. Nobody knows who I am nationally, therefore most Americans miss out on some valuable Ponzi scheme protection for only $19.95. My 2nd edition book is available most everywhere, like Apple Books, Amazon, Barnes & Noble and others.
"Well, gee Rick. You are nothing but a self-promoter hawking your book." If you think that, then you are stupider than I thought. The choice is to lose your money to a Ponzi scheme, or buy my book for $19.95. Duh! I would venture to guess that everyone who loses their money to a Ponzi scheme, loses a whole lot more than $19.95. Yes, I called you stupid, because you are stupid, if you are one of the ones that invested in this California Alcohol Licensee scam. In fact, this one has to be at the top of the stupidity list. I'm not worried about missing out on you people as a client, since you proved to me your stupidity. I like smart clients who take my fiduciary advice.
Of course, the U.S. Securities and Exchange Commission is on the case and working to get your money back. Who knows how long this will take? Further, who knows how much of your original "investment" you will get back, if any? You can read all about it here: https://www.sec.gov/news/press-release/2019-168
What if you could find a fiduciary who did not want you to open a new account or transfer your assets to their firm? You're looking at him. No risk of a Ponzi scheme from me either, since I do not make you open or transfer accounts before getting a Financial Plan. This is the Future of Advice, in case you did not know.
https://www.firstcoastplanning.com
"I have a great investment for you. We loan money to California Alcohol Licensees who need funds to apply for a California Liquor License. When they get the license, then they will pay you back at a rate of 12% interest once they open their liquor store."
Well, I do not know for sure what the sales pitch was, but I do know that $300,000,000 was stolen from investors who fell for this. Think of it. Investors actually put $300,000,000 into this so called "investment." THREE HUNDRED MILLION DOLLARS OF STUPIDITY!
Are we this dumb and stupid America? Or, is this just the result of pure unadulterated greed?
Readers of my book, Meet Wally Street. The Reason You're Stupid, 2nd edition (aptly named in this case) know full well that Ponzi schemers sell investments that are unregulated and do not exist. If these "investors" had read my book, then they would have never invested in this "investment." The problem is that I'm just a little peon in the grand scheme of things. Nobody knows who I am nationally, therefore most Americans miss out on some valuable Ponzi scheme protection for only $19.95. My 2nd edition book is available most everywhere, like Apple Books, Amazon, Barnes & Noble and others.
"Well, gee Rick. You are nothing but a self-promoter hawking your book." If you think that, then you are stupider than I thought. The choice is to lose your money to a Ponzi scheme, or buy my book for $19.95. Duh! I would venture to guess that everyone who loses their money to a Ponzi scheme, loses a whole lot more than $19.95. Yes, I called you stupid, because you are stupid, if you are one of the ones that invested in this California Alcohol Licensee scam. In fact, this one has to be at the top of the stupidity list. I'm not worried about missing out on you people as a client, since you proved to me your stupidity. I like smart clients who take my fiduciary advice.
Of course, the U.S. Securities and Exchange Commission is on the case and working to get your money back. Who knows how long this will take? Further, who knows how much of your original "investment" you will get back, if any? You can read all about it here: https://www.sec.gov/news/press-release/2019-168
What if you could find a fiduciary who did not want you to open a new account or transfer your assets to their firm? You're looking at him. No risk of a Ponzi scheme from me either, since I do not make you open or transfer accounts before getting a Financial Plan. This is the Future of Advice, in case you did not know.
https://www.firstcoastplanning.com
Thursday, August 22, 2019
Reg BI - Advisors Will Write Big Checks For This Rule
One of the things that I do as a Financial Planner and Professional Money Manager is stay abreast of what's going on in my industry. Sometimes, because of new regulations, I have no choice in the matter. This is one of those times.
The SEC has passed a new Final Rule called Regulation Best Interest, or Reg BI. This rule requires different things to happen as far as disclosure is concerned. It depends on how the financial advisor is licensed. If they work for only a brokerage firm and not a registered investment adviser, then they have to have a two (2) page disclosure. Insurance agents come to mind for this category.
If they are dual registered, meaning if they are licensed with a brokerage firm and a registered investment adviser, then they have to have a four (4) page disclosure, or they can give 2 two-page disclosures for a total of four pages. One two page disclosure for their brokerage firm and then another two page disclosure for their registered investment adviser firm for a total of four (4) pages. (I hope they do not forget to give prospective clients both two page disclosures, or all four pages!) Big brokerage firms come to mind for this category.
If the adviser is licensed only as a registered investment adviser, then there is a two (2) page disclosure. Both of these required disclosures essentially repeat items currently disclosed in Form ADV 2A documents already required to be disclosed to clients. The new items are called Conversation Starters. The SEC thinks we need to have a conversation with our clients and prospective clients which is a good thing I suppose, but seems a little artificial to me. These RIA's are generally advisers who charge a fee of some type, but as a caveat may also be able to sell commission products.
Now, as a result of this SEC Reg BI Final Rule, we will be adding two pages to our disclosures.
Why is more complexity in the way of disclosures always the answer when it comes to the government, specifically the SEC?
I believe the SEC adds complexity, because it is a way to keep a thriving legal and compliance community in business.
The costs of compliance for brokerage firms is not an issue. They have plenty of money to pay people, or hire outside compliance experts to draft a two or four page Reg BI disclosure for them. In the same vein, large registered investment adviser firms also can hire outside compliance experts to draft the Reg BI disclosure for them.
Where the pain of the Reg BI falls is on smaller firms. Luckily for me, I have thirty-one (31) years of adapting to changing rules and have garnered compliance experience from small brokerage firms, large brokerage firms and several registered investment adviser firms. This is not to say that I am the most expert person on compliance that ever existed, but I have a secret. I can read. When these Final Rules come out, I simply take a very deliberate approach and read these Final Rules over and over again, until I am comfortable with what the disclosure should say. Even then, sometimes when I go through state securities examinations, there are some things that I may have missed. Most of these misses are generally minor in nature, like forgetting to check a box or something, but nevertheless, it shows that even someone with years, even decades of experience does not always get it 100% right.
Now, imagine if you do not have my experience, nor my compliance skills. Reg BI creates a problem for you. The experience and understanding to draft this Reg BI disclosure on your own is either simply not there, or you have more important things to do, like running your business. What is your choice? You have to hire or have on staff a compliance expert to tackle this Reg BI disclosure. If you have to hire an outside compliance expert, then what is that going to cost? If you hire a lawyer, then odds are it will cost more than hiring a compliance firm. Think about this fact. You have a registered investment adviser firm and you have to have this Reg BI disclosure document. The window opens on October 1, 2019 and is fully required to be implemented by June 30, 2020. After that, your Reg BI disclosure document has to be completed and given to all current and prospective clients, put on your web site prominently and other requirements related to how you can deliver it.
Have you ever heard the term, "Someone has you over-a-barrel."? It means that you need their services and you do not have a lot of choice, unless you try and do it yourself. From a capitalist viewpoint, if you need someone's services and they know it, do you really think they are going to charge a low fee? Of course not. They will charge the highest fee that they can get away with. After all, the main release document by the SEC was 771 pages long. Even though the output required is only two (2) pages, your outside compliance expert is going to have to "study up" on those 771 pages.
If you understand these 771 page documents like I do, then you will know that the bulk of 771 pages is an explanation of how the SEC arrived at the Final Rule and their response to comments on the Final Rule that they received when Reg BI was a Proposed Rule. The actual rule starts on page 764 and ends seven (7) pages later on page 771. However, if you do not read the rule and just trust an outside compliance firm to draft this document for you, then undoubtedly they will go on and on about how complicated the rule is and the fact that it is 771 pages long. Of course, they do this to justify their "having you over-a-barrel" fee that they will charge you. Further still, their fee will go up depending on the size of your firm. The bigger the firm, the more they will charge you.
Personally, I can tell you that I have spent at least twenty (20) hours to forty (40) hours on this Reg BI disclosure document. You can figure a $200 hourly rate times 20 hours to be conservative and then you can easily see how much Reg BI will cost firms without someone like me. All this for a (2) page disclosure that pretty much repeats what is already in Form ADV 2A, but adds Conversation Starters.
Can you see how new regulations benefit attorneys and compliance professionals and really do not do much for clients and prospects of investment firms?
Don't you hate people who complain and do not offer a better solution? I do too, so I will offer mine.
A much simpler solution is always staring regulators in the face. If you work for a brokerage firm, then you are licensed as a registered representative. If you work for a registered investment adviser, then you are licensed as an investment adviser representative. The simple solution is if the SEC just said, "if you are a registered representative, then you are a commission advisor. If you are an investment adviser representative, then you are a fee adviser." Industry trade groups would howl at the moon over this simplicity. Of course, there would have to be another rule for dual registrants - those who are both a registered representative and an investment adviser representative. Well, we started simply, but now we are moving to complexity.
What if the SEC said, you have to disclose whether you are a registered representative with commission products for sale? All registered representatives by their nature can sell products that pay commissions. It should not matter that they are dually licensed as an investment adviser representative, because where are the conflicts of interest? With the commission products, of course. Therefore, we can forget about this dual registration stuff and require all registered representatives to be labeled as "registered representative-commissions." Well not quite. If they are dual registrants, like they are today with both licensed as a registered representative and an investment adviser representative, then in order to not have these people howling at the moon, we have to make an exception for them. So, these dual registrants would be labeled as "registered representative-commission and fees."
Now, let's look at investment adviser representatives. Do investment adviser representatives offer products for a commission? Some do if they are also insurance licensed. Therefore, they would have to be labeled as "investment adviser representative-commissions and fees." It doesn't matter whether or not they sell commission products or not, but if they are licensed to do so, then they must be labeled "investment adviser representative-commissions and fees."
Well, what if they are not licensed to sell any commission products? I am glad you asked. This makes it simple. These professionals would be labeled "investment adviser representative-fees."
Our end result is four categories that covers everything.
Doesn't this provide simplicity for clients and prospects? Let's evaluate this.
If you are a client or prospect, doesn't this simplify things for you? Can you not see and understand what type of advisor you have a choice in hiring? The truth is that we do not need the SEC to make this a new rule. I just explained to you the four types of advisers out there, so now it should be easier for you to know who to hire.
If you do not hire me, I hope you hire another adviser. You need our help whether you think you do or not.
By the way, if you need a Reg BI disclosure document for your small registered investment adviser firm (state regulated), then you can reach out to me at (904) 460-2700. I have this down to a science, so I can probably save you a bunch of moolah.
The SEC has passed a new Final Rule called Regulation Best Interest, or Reg BI. This rule requires different things to happen as far as disclosure is concerned. It depends on how the financial advisor is licensed. If they work for only a brokerage firm and not a registered investment adviser, then they have to have a two (2) page disclosure. Insurance agents come to mind for this category.
If they are dual registered, meaning if they are licensed with a brokerage firm and a registered investment adviser, then they have to have a four (4) page disclosure, or they can give 2 two-page disclosures for a total of four pages. One two page disclosure for their brokerage firm and then another two page disclosure for their registered investment adviser firm for a total of four (4) pages. (I hope they do not forget to give prospective clients both two page disclosures, or all four pages!) Big brokerage firms come to mind for this category.
If the adviser is licensed only as a registered investment adviser, then there is a two (2) page disclosure. Both of these required disclosures essentially repeat items currently disclosed in Form ADV 2A documents already required to be disclosed to clients. The new items are called Conversation Starters. The SEC thinks we need to have a conversation with our clients and prospective clients which is a good thing I suppose, but seems a little artificial to me. These RIA's are generally advisers who charge a fee of some type, but as a caveat may also be able to sell commission products.
Now, as a result of this SEC Reg BI Final Rule, we will be adding two pages to our disclosures.
Why is more complexity in the way of disclosures always the answer when it comes to the government, specifically the SEC?
I believe the SEC adds complexity, because it is a way to keep a thriving legal and compliance community in business.
The costs of compliance for brokerage firms is not an issue. They have plenty of money to pay people, or hire outside compliance experts to draft a two or four page Reg BI disclosure for them. In the same vein, large registered investment adviser firms also can hire outside compliance experts to draft the Reg BI disclosure for them.
Where the pain of the Reg BI falls is on smaller firms. Luckily for me, I have thirty-one (31) years of adapting to changing rules and have garnered compliance experience from small brokerage firms, large brokerage firms and several registered investment adviser firms. This is not to say that I am the most expert person on compliance that ever existed, but I have a secret. I can read. When these Final Rules come out, I simply take a very deliberate approach and read these Final Rules over and over again, until I am comfortable with what the disclosure should say. Even then, sometimes when I go through state securities examinations, there are some things that I may have missed. Most of these misses are generally minor in nature, like forgetting to check a box or something, but nevertheless, it shows that even someone with years, even decades of experience does not always get it 100% right.
Now, imagine if you do not have my experience, nor my compliance skills. Reg BI creates a problem for you. The experience and understanding to draft this Reg BI disclosure on your own is either simply not there, or you have more important things to do, like running your business. What is your choice? You have to hire or have on staff a compliance expert to tackle this Reg BI disclosure. If you have to hire an outside compliance expert, then what is that going to cost? If you hire a lawyer, then odds are it will cost more than hiring a compliance firm. Think about this fact. You have a registered investment adviser firm and you have to have this Reg BI disclosure document. The window opens on October 1, 2019 and is fully required to be implemented by June 30, 2020. After that, your Reg BI disclosure document has to be completed and given to all current and prospective clients, put on your web site prominently and other requirements related to how you can deliver it.
Have you ever heard the term, "Someone has you over-a-barrel."? It means that you need their services and you do not have a lot of choice, unless you try and do it yourself. From a capitalist viewpoint, if you need someone's services and they know it, do you really think they are going to charge a low fee? Of course not. They will charge the highest fee that they can get away with. After all, the main release document by the SEC was 771 pages long. Even though the output required is only two (2) pages, your outside compliance expert is going to have to "study up" on those 771 pages.
If you understand these 771 page documents like I do, then you will know that the bulk of 771 pages is an explanation of how the SEC arrived at the Final Rule and their response to comments on the Final Rule that they received when Reg BI was a Proposed Rule. The actual rule starts on page 764 and ends seven (7) pages later on page 771. However, if you do not read the rule and just trust an outside compliance firm to draft this document for you, then undoubtedly they will go on and on about how complicated the rule is and the fact that it is 771 pages long. Of course, they do this to justify their "having you over-a-barrel" fee that they will charge you. Further still, their fee will go up depending on the size of your firm. The bigger the firm, the more they will charge you.
Personally, I can tell you that I have spent at least twenty (20) hours to forty (40) hours on this Reg BI disclosure document. You can figure a $200 hourly rate times 20 hours to be conservative and then you can easily see how much Reg BI will cost firms without someone like me. All this for a (2) page disclosure that pretty much repeats what is already in Form ADV 2A, but adds Conversation Starters.
Can you see how new regulations benefit attorneys and compliance professionals and really do not do much for clients and prospects of investment firms?
Don't you hate people who complain and do not offer a better solution? I do too, so I will offer mine.
A much simpler solution is always staring regulators in the face. If you work for a brokerage firm, then you are licensed as a registered representative. If you work for a registered investment adviser, then you are licensed as an investment adviser representative. The simple solution is if the SEC just said, "if you are a registered representative, then you are a commission advisor. If you are an investment adviser representative, then you are a fee adviser." Industry trade groups would howl at the moon over this simplicity. Of course, there would have to be another rule for dual registrants - those who are both a registered representative and an investment adviser representative. Well, we started simply, but now we are moving to complexity.
What if the SEC said, you have to disclose whether you are a registered representative with commission products for sale? All registered representatives by their nature can sell products that pay commissions. It should not matter that they are dually licensed as an investment adviser representative, because where are the conflicts of interest? With the commission products, of course. Therefore, we can forget about this dual registration stuff and require all registered representatives to be labeled as "registered representative-commissions." Well not quite. If they are dual registrants, like they are today with both licensed as a registered representative and an investment adviser representative, then in order to not have these people howling at the moon, we have to make an exception for them. So, these dual registrants would be labeled as "registered representative-commission and fees."
Now, let's look at investment adviser representatives. Do investment adviser representatives offer products for a commission? Some do if they are also insurance licensed. Therefore, they would have to be labeled as "investment adviser representative-commissions and fees." It doesn't matter whether or not they sell commission products or not, but if they are licensed to do so, then they must be labeled "investment adviser representative-commissions and fees."
Well, what if they are not licensed to sell any commission products? I am glad you asked. This makes it simple. These professionals would be labeled "investment adviser representative-fees."
Our end result is four categories that covers everything.
- Registered representative-commissions
- Registered representative-commissions and fees
- Investment adviser representative-commissions and fees
- Investment adviser representative-fees
Doesn't this provide simplicity for clients and prospects? Let's evaluate this.
- Registered representative-commissions
- These will be brokerage only employees not licensed as investment adviser representatives and will include insurance agents.
- Registered representative-commissions and fees
- These will be the people who love wearing two hats, but they will no longer be able to call themselves investment adviser representatives. We have to make things simple, so, if they have a registered representative license, then that is all that matters. These people can sell commission products and also charge fees for money management and financial planning in any combination or assortment, I might add.
- Investment adviser representative-commissions and fees
- These will be people who are fee and commissions and also wear two hats and charge a mix of commissions and fees in any assortment. The bulk of their business will likely be fees, but they may be insurance licensed and sell some insurance products as part of a financial plan.
- This category could also include primarily insurance agents who sell mostly commission products, but just needed to be licensed as an investment adviser representative in order to advise you to liquidate your brokerage account so they could sell you that 10% commission annuity.
- Investment adviser representative-fees
- This is the clearest and easiest to understand. No commissions allowed. They only charge fees for their advice. This could be an assets-under-management fee, a flat annual retainer fee, or an hourly fee.
If you are a client or prospect, doesn't this simplify things for you? Can you not see and understand what type of advisor you have a choice in hiring? The truth is that we do not need the SEC to make this a new rule. I just explained to you the four types of advisers out there, so now it should be easier for you to know who to hire.
If you do not hire me, I hope you hire another adviser. You need our help whether you think you do or not.
By the way, if you need a Reg BI disclosure document for your small registered investment adviser firm (state regulated), then you can reach out to me at (904) 460-2700. I have this down to a science, so I can probably save you a bunch of moolah.
Thursday, June 2, 2011
More Vindication for My Do Not Buy List
My last blog post was vindication for a item on My Do Not Buy List. Just a scant two days ago, I blogged on Regulation D Private Placements and their dubious listing on My Do Not Buy List. Today, more vindication! Another item that I have on My Do Not Buy List gets noticed by both the SEC and FINRA.
The SEC and FINRA have come out with a warning about Structured Products which has been on My Do Not Buy List from day one. Although, in elite circles, they are sometimes called Structured Investments and this is how I list them on my handout. (See link at the bottom of this article.) After all, no one wants to be sold a product. See article here about the joint statement from the SEC and FINRA on Structured Products:
http://www.sec.gov/news/press/2011/2011-118.htm
This article includes a list of questions that investors should ask before investing in these Structured Products. All you have to do is take one look at the complexity of this list of questions and you will quickly agree with me as to why it should be on My Do Not Buy List. See the list of questions here:
http://www.sec.gov/investor/alerts/structurednotes.htm
The bottom line is that if it is on My Do Not Buy List, then you can rest assured that you should not ever invest in it. For your own handout of My Do Not Buy List, click this link below:
http://www.marianfs.com/documents/Do_Not_Buy_List.pdf
Feel free to forward to others for their protection.
The SEC and FINRA have come out with a warning about Structured Products which has been on My Do Not Buy List from day one. Although, in elite circles, they are sometimes called Structured Investments and this is how I list them on my handout. (See link at the bottom of this article.) After all, no one wants to be sold a product. See article here about the joint statement from the SEC and FINRA on Structured Products:
http://www.sec.gov/news/press/2011/2011-118.htm
This article includes a list of questions that investors should ask before investing in these Structured Products. All you have to do is take one look at the complexity of this list of questions and you will quickly agree with me as to why it should be on My Do Not Buy List. See the list of questions here:
http://www.sec.gov/investor/alerts/structurednotes.htm
The bottom line is that if it is on My Do Not Buy List, then you can rest assured that you should not ever invest in it. For your own handout of My Do Not Buy List, click this link below:
http://www.marianfs.com/documents/Do_Not_Buy_List.pdf
Feel free to forward to others for their protection.
Friday, June 25, 2010
FinReg or The American Financial Stability Act of 2010
We are almost there. Everyone has been waiting for the final version of The American Financial Stability Act of 2010 to become law. Shortly, we will be able to see it for ourselves and look for how it will impact the financial industry.
The early word is that the authority to require the fiduciary standard for broker/dealers and investment advisers will be granted to the U.S. Securities and Exchange Commission (SEC). The current status of the fiduciary standard is that investment advisers (like my firm) are already subject to the fiduciary standard. It is the broker/dealers (Wall Street firms, Banks & Insurance Companies) who are not subject to the fiduciary standard.
The SEC will have to wait six months until a study is done. This is really an opportunity for Wall Street firms, Banks and Insurance Companies to fight it and or, time to get prepared for it. The law is supposed to give the SEC the power to implement a rule related to the fiduciary standard. The SEC has commissioners who vote on such any rules, if presented. So, there is no guarantee that after the results of the study, the SEC will make such a rule. FinReg only gives them the power to make such a rule, I believe. It doesn't necessarily make it etched in stone. Also, they normally put proposed rules out for a period of time before implementation and allow people to comment on them. Then, after the comment period, the SEC reviews the comments and determines the impact that making the final rule may have on the industry.
I wonder, if it is easier for Wall Street firms, Banks and Insurance Companies to fight the implementation of an SEC rule such as the fiduciary standard, as opposed to a law passed by Congress. There is a major difference if you catch my drift. It would be much tougher to overturn legislation, in my opinion. Do not think for a minute that Wall Street firms, Banks and Insurance Companies will not be flooding the SEC with comments on any proposed rule on the fiduciary standard. It is obvious they do not want it.
The main thing you need to understand is that registered investment advisers are already subject to the fiduciary standard and they (we) only wear one hat. So, if you see a lot of resistance to the fiduciary standard in the next six months, keep in mind that is not coming from registered investment advisers.
As I have blogged about many times before, the best financial advisor to hire is an Independent Registered Investment Adviser with no Wall Street firm, Bank or Insurance Company broker/dealer affiliations. Like me.
The early word is that the authority to require the fiduciary standard for broker/dealers and investment advisers will be granted to the U.S. Securities and Exchange Commission (SEC). The current status of the fiduciary standard is that investment advisers (like my firm) are already subject to the fiduciary standard. It is the broker/dealers (Wall Street firms, Banks & Insurance Companies) who are not subject to the fiduciary standard.
The SEC will have to wait six months until a study is done. This is really an opportunity for Wall Street firms, Banks and Insurance Companies to fight it and or, time to get prepared for it. The law is supposed to give the SEC the power to implement a rule related to the fiduciary standard. The SEC has commissioners who vote on such any rules, if presented. So, there is no guarantee that after the results of the study, the SEC will make such a rule. FinReg only gives them the power to make such a rule, I believe. It doesn't necessarily make it etched in stone. Also, they normally put proposed rules out for a period of time before implementation and allow people to comment on them. Then, after the comment period, the SEC reviews the comments and determines the impact that making the final rule may have on the industry.
I wonder, if it is easier for Wall Street firms, Banks and Insurance Companies to fight the implementation of an SEC rule such as the fiduciary standard, as opposed to a law passed by Congress. There is a major difference if you catch my drift. It would be much tougher to overturn legislation, in my opinion. Do not think for a minute that Wall Street firms, Banks and Insurance Companies will not be flooding the SEC with comments on any proposed rule on the fiduciary standard. It is obvious they do not want it.
The main thing you need to understand is that registered investment advisers are already subject to the fiduciary standard and they (we) only wear one hat. So, if you see a lot of resistance to the fiduciary standard in the next six months, keep in mind that is not coming from registered investment advisers.
As I have blogged about many times before, the best financial advisor to hire is an Independent Registered Investment Adviser with no Wall Street firm, Bank or Insurance Company broker/dealer affiliations. Like me.
Wednesday, May 19, 2010
Stub Quotes Contribute to May 6th Trading Drop
The SEC and CFTC came out with a report today showing their preliminary analysis of the factors leading to the trading activity on May 6th. One of the repeated phrases in the report is "stub quotes." Stub quotes are minimum quotes that market makers put on the other side of trades to "legally" maintain a two sided market for equities. For example, they may put out a Ask quote (Buy Order price) on a stock at $53.75, but instead of putting in a Bid price (Sell Order price) close to the Ask price like $52.75, they instead put in a "stub quote" of $.01. They never expected any trades to hit their stub quote prices. I am sure they thought this was a good way to comply with the other side of the market (Sell side), because who in their right mind would want to Sell their position for a penny a share?
One thing investors who invest on their own need to understand is that Stop Loss Orders will not protect you in a market like the one we experienced on May 6, 2010. I am afraid that a lot of people found this fact out the hard way.
Some people try and protect their positions by putting in Stop Loss Orders. These trade orders are triggered once the price of the stock goes through the stop price. Once it goes through the price, then it becomes a Market Order. In this case, the stub quote for the stock was $.01. So, this meant if you had a Stop Loss Order in at $47, then when it passed through $47, it became a Market Order. This means it goes to the Market Maker at his Sell price! In this case, his sell price was a penny a share! Yikes!!
You may be thinking that this is not fair. The Market Maker in these stocks never imagined a situation where people would be selling at their stub quote prices. Murphy's Law comes to mind here. If there is a possibility that something can go wrong, then it will. In this case, this is what happened.
Think about it from the Market Maker's point of view. If they put out a stub quote of 1 cent a share, then they are actually helping keep the price of the stock up, because this one cent a share Sell price would dissuade investors from selling their stock. They never imagined that what happened on May 6th would actually happen.
The other side of the coin is the shrewd traders who saw these stub quotes and placed Buy Limit Orders. There were several firms that placed orders to Buy these volatile stocks slightly above the stub quote price. For example, they may have placed an order to Buy a stock at $1.00 a share when it normally trades at $50 a share or higher. Since they put in a Buy Limit Order, their orders were filled. Buy Limits are executed at the price requested, in this example, $1.00 a share.
Several of those extreme Buy Limit Orders were filled, but later busted by the SEC. The SEC busted trades that exceeded 60% of their previous 2:40 pm price. However, there were several firms who profited by placing their Buy Limit Orders above the 60% busted trade threshold. In other words, instead of being greedy and putting in their Buy Limit Order at $1.00, they put in their Buy Limit Order at $35 which was within the SEC's 60% threshold. On a $50 stock, they just made a 30% return in a few seconds. These Buy Limit Orders were filled and not busted by the SEC.
You may be thinking that this is not fair either. Well, this is an example of Flash Order Trading. These Buy Orders were most likely not done by some trader at a firm sitting by the computer, but rather by a computer algorithim trading program that is programmed to put in Buy Orders if they see disparate price movements in stocks.
Of course, all the TV pundits are now saying, "..anyone who puts in a market order is a fool." Hindsight is 20/20 I know, but there is no way these TV pundit (idiots in my opinion) knew that a scenario like May 6th would happen. They are just trying to act smart when in reality they are not.
We live in a complicated world today folks. The joint SEC-CFTC report exposes the fact that they cannot trace every single trade order without going to introducing brokers for the information. Personally, I think in order to properly find the culprit, the SEC needs the ability to review every single trade, every milisecond of every single day. Stay tuned, this may take several more weeks, or even months before we see a final report from the SEC-CFTC committee on this issue.
In the meatime, are you sure you want to invest on your own?
One thing investors who invest on their own need to understand is that Stop Loss Orders will not protect you in a market like the one we experienced on May 6, 2010. I am afraid that a lot of people found this fact out the hard way.
Some people try and protect their positions by putting in Stop Loss Orders. These trade orders are triggered once the price of the stock goes through the stop price. Once it goes through the price, then it becomes a Market Order. In this case, the stub quote for the stock was $.01. So, this meant if you had a Stop Loss Order in at $47, then when it passed through $47, it became a Market Order. This means it goes to the Market Maker at his Sell price! In this case, his sell price was a penny a share! Yikes!!
You may be thinking that this is not fair. The Market Maker in these stocks never imagined a situation where people would be selling at their stub quote prices. Murphy's Law comes to mind here. If there is a possibility that something can go wrong, then it will. In this case, this is what happened.
Think about it from the Market Maker's point of view. If they put out a stub quote of 1 cent a share, then they are actually helping keep the price of the stock up, because this one cent a share Sell price would dissuade investors from selling their stock. They never imagined that what happened on May 6th would actually happen.
The other side of the coin is the shrewd traders who saw these stub quotes and placed Buy Limit Orders. There were several firms that placed orders to Buy these volatile stocks slightly above the stub quote price. For example, they may have placed an order to Buy a stock at $1.00 a share when it normally trades at $50 a share or higher. Since they put in a Buy Limit Order, their orders were filled. Buy Limits are executed at the price requested, in this example, $1.00 a share.
Several of those extreme Buy Limit Orders were filled, but later busted by the SEC. The SEC busted trades that exceeded 60% of their previous 2:40 pm price. However, there were several firms who profited by placing their Buy Limit Orders above the 60% busted trade threshold. In other words, instead of being greedy and putting in their Buy Limit Order at $1.00, they put in their Buy Limit Order at $35 which was within the SEC's 60% threshold. On a $50 stock, they just made a 30% return in a few seconds. These Buy Limit Orders were filled and not busted by the SEC.
You may be thinking that this is not fair either. Well, this is an example of Flash Order Trading. These Buy Orders were most likely not done by some trader at a firm sitting by the computer, but rather by a computer algorithim trading program that is programmed to put in Buy Orders if they see disparate price movements in stocks.
Of course, all the TV pundits are now saying, "..anyone who puts in a market order is a fool." Hindsight is 20/20 I know, but there is no way these TV pundit (idiots in my opinion) knew that a scenario like May 6th would happen. They are just trying to act smart when in reality they are not.
We live in a complicated world today folks. The joint SEC-CFTC report exposes the fact that they cannot trace every single trade order without going to introducing brokers for the information. Personally, I think in order to properly find the culprit, the SEC needs the ability to review every single trade, every milisecond of every single day. Stay tuned, this may take several more weeks, or even months before we see a final report from the SEC-CFTC committee on this issue.
In the meatime, are you sure you want to invest on your own?
Thursday, March 25, 2010
Remember When I Said...
That Promissory Notes are nothing but Ponzi Schemes? I know that I am beginning to sound like a broken record on this subject, but apparently there are people out there that still are not listening. Low and behold the SEC has charged a New Mexico realtor with fraud and obtained an emergency order to stop him from continuing to sell these Promissory Notes. Of course, he is innocent until proven guilty, but the SEC says he offered investors high returns from 10 to 25% over one to three years. Are you kidding me?
I am truly sorry that people lost their money, but come on people? This was a too good to be true example, if there ever was one. Can you honestly look me in the face as an investor that invested in this garbage and tell me that you thought it was possible to earn 25% over a three year period? Oh but Rick, it was real estate and this guy was a well know realtor in the community. Hogwash. You know better.
The investors who bought into this garbage have to take responsibility for their poor judgment. Read my lips. Promissory Notes are nothing but Ponzi Schemes. Promissory Notes are on Rick's Do Not Buy List, so I am better off not falling for the Promissory Notes trap.
Here is the link to the SEC Press Release on this case. Read it and weep.
http://www.sec.gov/news/press/2010/2010-43.htm
I am truly sorry that people lost their money, but come on people? This was a too good to be true example, if there ever was one. Can you honestly look me in the face as an investor that invested in this garbage and tell me that you thought it was possible to earn 25% over a three year period? Oh but Rick, it was real estate and this guy was a well know realtor in the community. Hogwash. You know better.
The investors who bought into this garbage have to take responsibility for their poor judgment. Read my lips. Promissory Notes are nothing but Ponzi Schemes. Promissory Notes are on Rick's Do Not Buy List, so I am better off not falling for the Promissory Notes trap.
Here is the link to the SEC Press Release on this case. Read it and weep.
http://www.sec.gov/news/press/2010/2010-43.htm
Thursday, March 4, 2010
Section 7103. Establishment of a Fiduciary Duty
Okay. They are finally getting close to passing this law, but it includes a study that may delay its implementation for a few years. It seems that the government wants disclosure for retail customers, but they do not know what a retail customer is, so they have to have a study. In addition, they want disclosure for retail customers, but they have to have a study to determine what to put in that disclosure to retail customers.
Right now, their definition of a retail customer is:
(A) receives personalized investment advice about securities from a broker or dealer; and
(B) uses such advice primarily for personal, family, or household purposes.
Of course they are not sure about this, so there will be a study to determine the proper definition of a retail customer.
A couple of things jump out at me in this definition. Registered Investment Advisers must be exempt, because they are not listed in Section (A) above. (See page 1278 of 1705 lines 7, 8 & 9)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173rfs.txt.pdf
I guess that a retail customer is something that only brokers or dealers work with, not investment advisers according to this bill.
The second thing that I noticed is that in Section (B) above, there is no provision for "businesses, charitable organizations, pension plans, or trusts." I guess the House Financial Services Committee does not think that these need the same protections as their definition of retail customers.
Another curious thing that I find in this bill is that the term "customer" does not include an investor in a private fund managed by an investment adviser, where such private fund has entered into an advisory contract with such adviser. Excuse me, but would not the scandulous Mr. Bernard Madoff be considered a manager of a private fund? Or, would not the feeder funds that feed Mr. Bernard Madoff money, be allowed to continue business as usual as a result of this exemption?
Of course, the more I read into this Section 7103, the more errors that I find. Now, I see later in the bill that they added investment advisers to the definition of a retail customer. See page 1280 line 10. This must be a staffing mistake. Why is it not on page 1278, but it is on page 1280? Looks like the makings of a Technical Corrections Bill that will follow. Unless of course, someone reads this blog and fixes it beforehand.
Later in the bill, brokers or dealers are going to be subject to not only FINRA rules, but also the same rules that investment advisers are subject to upholding. Wall Street firms must have slipped on this one. I am surprised that they did not lobby out of this one. After all, there are a ton of brokers out there and dealers too, who have blemishes on their record. Routinely, these brokers and dealers have not had to tell their customers about their backgrounds. Apparently, now, if they are subject to the same rules as investment advisers, then they will not only have to tell their customers about their backgrounds, they will have to do so in writing. This goes for insurance agents and insurance company broker/dealers. This will be a interesting development. I know several advisors who have fines, suspensions and the like on the records, but they never tell their customers about them. What do you want to bet that these type of unscrupulous advisers fail in their efforts of full disclosures?
This rule ends with the granting of the SEC to obtain a study to determine what a retail customer is, what potential conflicts of interest are presented, the differences between investment advice from various providers like brokers, dealers or investment adivsers. Then, after the completion of the study, the law gives the right to the SEC to implement the rules.
The major points of this study that they need to clarifiy are the following:
1) what is a retail customer? (I'm not kidding.)
2) what is the range of products and services sold or provided to retail customers and are the sellers under the watchful eye of the SEC?
3) how are these products or services sold to retail customers, what are the fees and conflicts of interests that may arise as a result?
4) what should customers receive prior to purchasing these products or services and who is the appropriate person or entity to provide such information?
5) they want to ensure that reasonably similar products and services are subject to similar treatment and disclsoure requirements.
Did you notice that I did not mention anything about a fiduciary duty? Well, the Wall Street firms may believe that they have dodged a bullet, but guess what? The fact that this bill, like I mentioned above, subjects brokers or dealers to the same rules as investment advisers, this means that they will be subject to the fiduciary duty requirements. Whoops! Wall Street needs some new lobbyists. They failed to catch this one.
Boy. I do not know about you, but I feel a lot safer now for "retail customers," don't you? I sure am glad we have the government to take care of us. Yes, I am being facetious.
Right now, their definition of a retail customer is:
(A) receives personalized investment advice about securities from a broker or dealer; and
(B) uses such advice primarily for personal, family, or household purposes.
Of course they are not sure about this, so there will be a study to determine the proper definition of a retail customer.
A couple of things jump out at me in this definition. Registered Investment Advisers must be exempt, because they are not listed in Section (A) above. (See page 1278 of 1705 lines 7, 8 & 9)
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173rfs.txt.pdf
I guess that a retail customer is something that only brokers or dealers work with, not investment advisers according to this bill.
The second thing that I noticed is that in Section (B) above, there is no provision for "businesses, charitable organizations, pension plans, or trusts." I guess the House Financial Services Committee does not think that these need the same protections as their definition of retail customers.
Another curious thing that I find in this bill is that the term "customer" does not include an investor in a private fund managed by an investment adviser, where such private fund has entered into an advisory contract with such adviser. Excuse me, but would not the scandulous Mr. Bernard Madoff be considered a manager of a private fund? Or, would not the feeder funds that feed Mr. Bernard Madoff money, be allowed to continue business as usual as a result of this exemption?
Of course, the more I read into this Section 7103, the more errors that I find. Now, I see later in the bill that they added investment advisers to the definition of a retail customer. See page 1280 line 10. This must be a staffing mistake. Why is it not on page 1278, but it is on page 1280? Looks like the makings of a Technical Corrections Bill that will follow. Unless of course, someone reads this blog and fixes it beforehand.
Later in the bill, brokers or dealers are going to be subject to not only FINRA rules, but also the same rules that investment advisers are subject to upholding. Wall Street firms must have slipped on this one. I am surprised that they did not lobby out of this one. After all, there are a ton of brokers out there and dealers too, who have blemishes on their record. Routinely, these brokers and dealers have not had to tell their customers about their backgrounds. Apparently, now, if they are subject to the same rules as investment advisers, then they will not only have to tell their customers about their backgrounds, they will have to do so in writing. This goes for insurance agents and insurance company broker/dealers. This will be a interesting development. I know several advisors who have fines, suspensions and the like on the records, but they never tell their customers about them. What do you want to bet that these type of unscrupulous advisers fail in their efforts of full disclosures?
This rule ends with the granting of the SEC to obtain a study to determine what a retail customer is, what potential conflicts of interest are presented, the differences between investment advice from various providers like brokers, dealers or investment adivsers. Then, after the completion of the study, the law gives the right to the SEC to implement the rules.
The major points of this study that they need to clarifiy are the following:
1) what is a retail customer? (I'm not kidding.)
2) what is the range of products and services sold or provided to retail customers and are the sellers under the watchful eye of the SEC?
3) how are these products or services sold to retail customers, what are the fees and conflicts of interests that may arise as a result?
4) what should customers receive prior to purchasing these products or services and who is the appropriate person or entity to provide such information?
5) they want to ensure that reasonably similar products and services are subject to similar treatment and disclsoure requirements.
Did you notice that I did not mention anything about a fiduciary duty? Well, the Wall Street firms may believe that they have dodged a bullet, but guess what? The fact that this bill, like I mentioned above, subjects brokers or dealers to the same rules as investment advisers, this means that they will be subject to the fiduciary duty requirements. Whoops! Wall Street needs some new lobbyists. They failed to catch this one.
Boy. I do not know about you, but I feel a lot safer now for "retail customers," don't you? I sure am glad we have the government to take care of us. Yes, I am being facetious.
Remember When I Said...
Promissory Notes are nothing but a Ponzi scheme? Well, once again, yours truly has been proven correct. Of course, the folks in this press release are innnocent until proven guilty in a court of law. Here is the link:
http://www.sec.gov/news/press/2010/2010-31.htm
It seems that this couple promised returns of 9 and 16 percent to investors. That right there should have been your first clue that this was bogus. Oh but, Rick it was a real estate investment. Well, that certainly makes all the difference...NOT! No it does not. It does not matter what it is as far as I am concerned. Promissory Notes are nothing but Ponzi schemes. They are structured EXACTLY like a Ponzi scheme. Investors put in money and are paid interest on their own money. As long as new investors keep coming in, then investors keep getting paid. However, when the stream of new investors stop, then the original investment somehow mysteriously disappears into "an investment." Like a great real estate investment. Of course, you cannot get your money back, because the "investment" has to have time to grow. After all, they told you this going in. Don't you remember?
Get this people. Promissory Notes = Ponzi Scheme. Do not EVER invest in a Promissory Note. If you do, plan on being a victim.
Be smart out there.
http://www.sec.gov/news/press/2010/2010-31.htm
It seems that this couple promised returns of 9 and 16 percent to investors. That right there should have been your first clue that this was bogus. Oh but, Rick it was a real estate investment. Well, that certainly makes all the difference...NOT! No it does not. It does not matter what it is as far as I am concerned. Promissory Notes are nothing but Ponzi schemes. They are structured EXACTLY like a Ponzi scheme. Investors put in money and are paid interest on their own money. As long as new investors keep coming in, then investors keep getting paid. However, when the stream of new investors stop, then the original investment somehow mysteriously disappears into "an investment." Like a great real estate investment. Of course, you cannot get your money back, because the "investment" has to have time to grow. After all, they told you this going in. Don't you remember?
Get this people. Promissory Notes = Ponzi Scheme. Do not EVER invest in a Promissory Note. If you do, plan on being a victim.
Be smart out there.
Wednesday, November 11, 2009
State Regulators May Supervise More Registered Investment Advisers
One of the items being kicked around in Congress right now is to allow the SEC to handoff to the individual state regulators the regulation of registered investment advisers with total assets under management of $100,000,000 or less. This would make a whole lot of sense. I read at Investment News online today, http://www.investmentnews.com/, that the SEC only reviews about 9% of all registered investment advisers each year. This means that 91% are not being examined.
The bulk of all registered investment advisers are in the $100,000,000 and less category. Currently, if you have $30,000,000 or more, then you must be registered with the SEC. By raising the threshold, then the bulk of registered investment advisers would fall back to the states for supervision. Of course in this economic environment, we may see a lot of understaffed and underfunded state securities regulators with a lot more on their plates. Nevertheless, something good may come out it, like new jobs!
Here is an example of the problem with regard to the current regulatory environment. Let us suppose that a registered investment adviser has $50,000,000 under management. Further, let us assume that this registered investment adviser is doing something unethical enough to be shut down. If only 9% of the registered investment advisers are examined each year by the SEC, how long could this unethical firm continue to operate? Theorectically, they could probably go on for a few more years, perhaps even five or six more years before the SEC ever got around to examining them. The state regulator's hands are tied, since they do not have jurisdiction. Even if they were to clue the SEC in on the unethical activity, there is no guarantee that the SEC would deem it serious enough to swoop in immediately. Or, the SEC may have other pressing issues that they deem to be more important.
Contrast this with the same firm being under state regulation now. The state regulators, who are more aware of what is going on with the unethical firm, would have nothing in their way to go in for a surprise exam. They could go in and clean things up.
All in all, I totally agree with the idea to raise the minimum assets under management to be registered with the SEC from $30 million to $100 million. Let us hope that they can get this done.
Thanks.
The bulk of all registered investment advisers are in the $100,000,000 and less category. Currently, if you have $30,000,000 or more, then you must be registered with the SEC. By raising the threshold, then the bulk of registered investment advisers would fall back to the states for supervision. Of course in this economic environment, we may see a lot of understaffed and underfunded state securities regulators with a lot more on their plates. Nevertheless, something good may come out it, like new jobs!
Here is an example of the problem with regard to the current regulatory environment. Let us suppose that a registered investment adviser has $50,000,000 under management. Further, let us assume that this registered investment adviser is doing something unethical enough to be shut down. If only 9% of the registered investment advisers are examined each year by the SEC, how long could this unethical firm continue to operate? Theorectically, they could probably go on for a few more years, perhaps even five or six more years before the SEC ever got around to examining them. The state regulator's hands are tied, since they do not have jurisdiction. Even if they were to clue the SEC in on the unethical activity, there is no guarantee that the SEC would deem it serious enough to swoop in immediately. Or, the SEC may have other pressing issues that they deem to be more important.
Contrast this with the same firm being under state regulation now. The state regulators, who are more aware of what is going on with the unethical firm, would have nothing in their way to go in for a surprise exam. They could go in and clean things up.
All in all, I totally agree with the idea to raise the minimum assets under management to be registered with the SEC from $30 million to $100 million. Let us hope that they can get this done.
Thanks.
Friday, September 4, 2009
Harvey Pitt Former SEC Commission is an Apologist for FINRA?
I was stunned last night watching Fox Business with David Asman. He had on his show two Madoff victims, Sue and Dominic Ambrosino, Larry Doyle of senseoncents.com and former SEC Commissioner Harvey Pitt.
The tide is beginning to turn against FINRA. Larry Doyle has long spoken out against FINRA on his blog at www.senseoncents.com. Last night on Fox Business, LD mentioned the fact that FINRA had money in Auction Rate Securities in 2007, but inexplicably got their own money out before the Auction Rate Securities collapse. I guess they are an investor watchdog, but not when it comes to saving their own bacon.
Sue and Dominic Ambrosino are wise to FINRA and their culpability in the Madoff Scandal. They pointed out that FINRA has not been too transparent about whether they too lost money with Madoff. The latest FINRA Annual Report does not disclose whether they did or did not lose money with Madoff or one of his feeder funds. Word on the street is that they did lose money as a result of Madoff.
Former SEC Commissioner Harvey Pitt, not one of the best SEC Commissioners we ever had by the way, seemed to me to have been given talking points. He kept trying to hide the fact that FINRA and its predecessor organization was responsible for the Madoff mess. Pitt kept trying to keep the blame squarely on the SEC. This was stunning to witness from my perspective.
David Asman pointed out that Mary Shapiro was the former head of FINRA and now she is the head of the SEC. I have nothing against Ms. Shapiro, but it seems like they got someone at the helm of the SEC who can probably keep FINRA out of it. However, time will tell. FINRA is guilty as sin in my opinion. You cannot convince me that FINRA did not look the other way when it came to Bernie Madoff.
As a former NASD Registered Principal, I had my office gone through with a fine tooth comb by an ex-NASD Examiner for several years. Of course, I always had good exams. I can guarantee you, the guy that examined my office would have easily discovered the Ponzi scheme Madoff was running.
There is something amiss with regard to FINRA being able to dodge the Madoff scandal up until now. Hopefully, with Fox Business getting a little nosy, the truth will come out about FINRA and their cosy little relationship with Bernie Madoff.
Stay tuned.
The tide is beginning to turn against FINRA. Larry Doyle has long spoken out against FINRA on his blog at www.senseoncents.com. Last night on Fox Business, LD mentioned the fact that FINRA had money in Auction Rate Securities in 2007, but inexplicably got their own money out before the Auction Rate Securities collapse. I guess they are an investor watchdog, but not when it comes to saving their own bacon.
Sue and Dominic Ambrosino are wise to FINRA and their culpability in the Madoff Scandal. They pointed out that FINRA has not been too transparent about whether they too lost money with Madoff. The latest FINRA Annual Report does not disclose whether they did or did not lose money with Madoff or one of his feeder funds. Word on the street is that they did lose money as a result of Madoff.
Former SEC Commissioner Harvey Pitt, not one of the best SEC Commissioners we ever had by the way, seemed to me to have been given talking points. He kept trying to hide the fact that FINRA and its predecessor organization was responsible for the Madoff mess. Pitt kept trying to keep the blame squarely on the SEC. This was stunning to witness from my perspective.
David Asman pointed out that Mary Shapiro was the former head of FINRA and now she is the head of the SEC. I have nothing against Ms. Shapiro, but it seems like they got someone at the helm of the SEC who can probably keep FINRA out of it. However, time will tell. FINRA is guilty as sin in my opinion. You cannot convince me that FINRA did not look the other way when it came to Bernie Madoff.
As a former NASD Registered Principal, I had my office gone through with a fine tooth comb by an ex-NASD Examiner for several years. Of course, I always had good exams. I can guarantee you, the guy that examined my office would have easily discovered the Ponzi scheme Madoff was running.
There is something amiss with regard to FINRA being able to dodge the Madoff scandal up until now. Hopefully, with Fox Business getting a little nosy, the truth will come out about FINRA and their cosy little relationship with Bernie Madoff.
Stay tuned.
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